FQ4 - Expecting deceleration (NAPA)
The Duckhorn Portfolio reported FQ4 EPS of $.08 in line with consensus expectations. Revenue grew 10.0% YOY with volume growth of 7.1% and price/mix of 2.9%. Pricing was largely driven by the DTC channel. Wholesale-to-distributor sales grew 7.3%. California direct-to-trade grew 12.5%. DTC grew by 21.2%. Gross margins expanded 280bps. SG&A grew 13.5%. Adjusted EBITDA margins expanded 260bps.
Management guided F2023 to $.62-.64, below consensus of $.67. Revenue is guided to be between $393 and $401M with consensus at the high end of the range. Gross margins are expected to contract 50 to 100bps due to a greater mix of the Duckhorn brand and off-premise sales. Management has ratcheted growth expectations down slightly to account for the weaker macro and luxury environment. Duckhorn’s margin performance was impressive given the limited pricing in the wine category despite similar inflationary cost pressures. The Duckhorn Portfolio is on our short list.
Grocery category inflation (UTZ, PEP)
In the four-week period ending September 11, grocery prices increased 13.6% YOY, decelerating from 15.1% in July. The beverages and snacks categories led food inflation. Prices for beverages increased 15.8% for the most recent four weeks but were down from the peak in July of 17.7%. Snack prices were up 17.6% for the most recent four weeks but were also down from the July peak of 19.4%. Meat prices have seen the most deceleration from 18.5% in May to 8.1% in the most recent four weeks. Alcoholic beverages had the lowest rate of inflation of 3.5% in the most recent four weeks.
To be healthy (AVO, CVGW)
The FDA has proposed to update the definition of food to claim it is “healthy” to be consistent with federal dietary guidelines. Under the new guidelines, food that claims to be “healthy” must have the equivalent of a serving of fruits, vegetables, grains, dairy, or protein. Fresh fruits and vegetables automatically will be able to make this claim. The FDA is taking comments for 90 days. Since 1994 the agency has recognized that when a manufacturer uses labeling that describes a product as healthy in the nutritional context it is making an implicit claim about the level of nutrients of the product. The agency is looking to limit the use of the “healthy” claim to current nutrition science which emphasizes nutrient-dense foods such as fruits, vegetables, and whole grains. Foods like water, avocados, nuts, seeds, higher-fat fish such as salmon that currently are ineligible to claim to be “healthy” would be able to do so. White bread, highly sweetened yogurt, and highly sweetened cereal would no longer be able to qualify as healthy.
The White House is pushing for a standardized, front-of-package food labeling system to help people make healthier choices. The labeling could come in the form of star ratings or traffic lights. New labeling laws will be controversial and will take years to implement.
Hurricane Ian (WMT)
Supermarket shelves across the state of Florida have been cleaned out as residents prepare for Hurricane Ian. The hurricane is the first major hurricane to make landfall in the state in the past four years. The stores in the area will have damages, closures, difficulty staffing, and restocking shelves. Southeastern Grocers and Publix are two of the largest grocery chains in the region, both are private. Sales disruptions will be temporary. One lasting impact may include higher fertilizer prices as West Central Florida produces half the country’s supply of phosphate fertilizer. A wide variety of plants need phosphorous including produce, fruit trees, legumes, and lettuce. Our thoughts are with the people in the area.
